The CFPB (Consumer Financial Protection Bureau) is expected to revamp its payday lending rule in the coming months, according to sources familiar with the bureau's proposal. The anticipated change is the elimination of underwriting requirements established in 2017 that required lenders to verify a borrower's income, as well as debts and other spending assessing one's ability to repay credit while meeting living expenses before extending an offer of credit.
The change in policy was first brought about in 2017 under former Director Richard Cordray. The CFPB, now led by Kathy Kraninger, first showed interest in revisiting the ability-to-repay provisions and removing them altogether in October. They are now expected, within the coming days, to issue a proposal to reopen the rule for public comment. This change would affect Payday, Vehicle Title, and High Cost Installment Loans. The reconsideration of ability-to-pay provisions, and not the payment provisions, came around due to the consequences to the consumer and industry brought by ability to repay provisions.
The cornerstone of the rules requires lenders to determine whether a borrow could afford to repay a loan in full with interest within 30 days, before they were able to approve the loan. It also restricted the number of loans a person could take out in a certain period of time. The rollback of these rules will allow payday lenders more freedom when it comes to the criteria they use for prospecting leads, as well as who they can extend offers to.
These standards, including the ability to repay as well as the limited number of payday loans a person can roll over would be eliminated under the new rules. The CFPB does propose keeping one part of the payday lending regulations intact: a ban on lenders from making multiple debits on a borrower's bank account.
While this is good news for payday lenders; it's still not set in stone. The proposal to reopen the rule must first be opened up to the public for comment for 90 days and then will continue to be discussed before its implementation. However, it is the first step, and a good signal to payday lenders to keep their eye on the CFPB in the coming months for a decision.